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Systematic Trading: A unique new method for designing trading and investing systems by Robert Carver

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Chapter Nine. Volatility targeting

Do you remember Sergei, dispenser of opaque trading advice in chapter seven? He told me that there were three issues to consider when deciding how big a position we should have. The first thing to consider was how much we liked the trade. You’ve dealt with that by creating a single forecast for each instrument you’re trading – either a discretionary forecast for semi-automated traders, a constant forecast for asset allocating investors, or a combined forecast for staunch systems traders. Now we’re ready to return to Sergei’s second question, “How much can you afford to lose?”96

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